Is rental housing nearing its doom days in India?

Off late, Indian real estate sector has been going through a thorough revamp phase on the policy reforms front and mega announcements with respect to infra upgradation in the country. All this has been a recent addition for the realty sector that plans to revolutionise it. Housing for All has been a jargon for almost two years now and the public has been looking up to the government and the private sector to offer a roof over everyone. At present, people reside in two ways, one in their own abodes or second, in a property bought by others for which some amount is to be paid each month; in simple words, rented accommodation. Now, price factor is the only concern in India where public and private sectors need to cooperate and come out with a solution, i.e. low cost housing. Affordable housing will definitely address to this need but at the same time, if the cost of EMIs can beat the rent per month, then why won’t people go into buying homes rather than staying on rent? So, is rental housing nearing its doom days in India?

“India has a housing shortage by almost two crore units where more than 90 percent accounts to economically weaker sections and low income groups. At the same time, major realty regions across India are witnessing over supply of units by almost 7,50,000 throughout NCR, MMR, Bangalore, Chennai, Pune and few others. Thus, Indian realty market is in dire need of low cost housing and the moment private sector and government come out with such assignments, there will be a major supply of affordable units across the nation and the demand will be well met. This in turn can take rental housing demand for a ride as people will then have a property that they might be able to afford and there is nothing better than having a home of own”, explains Rupesh Gupta, Director, JM Housing.

Rental Real Estate Market

Rental real estate market has served as a backbone for the Indian realty sector for decades and it has significantly contributed towards the growth of the realty sector. But as the affordable housing segment grows, rental housing aspect will be on the losing end. Commercial rental realty market is still in its growth phase as commercial real estate is still catching pace in India. But rental housing segment now falls in danger as people will be able to buy a property and not required to rent one.

“Even in the budget speech this year, major incentives were offered for affordable housing and rental housing. As the demand for affordable housing gains momentum, there will be an inverse relation visible for the rental housing as there will be no takers for the rental accommodation once people have properties of their own. In either cases though, real estate sector will be the winner”, avers Ankit Aggarwal, CMD, Devika Group.

Adding further and speaking about the flipside in sync, Vikas Bhasin, MD, Saya Group elucidates, “There is still a lot of time for affordable housing shortage to be met and till that time, rental housing is the key to maintain the demand in the economy. It is true that affordable housing when reached to all might be a dampener for rental housing segment and take off the investors from the market, but till that time, rental housing will be the only viable option available to address the low cost housing needs.”

The government is also working diligently to cater to the housing needs of the public and therefore, the Union Budget 2016-17 had a bouquet of incentives in offer for affordable housing and rental housing. For the the first time homebuyers, government has offered an additional deduction of Rs. 50,000 per annum for loans extending upto Rs. 35 lakhs sanctioned in 2016-17, where the cost of the house does not exceed Rs. 50 lakhs. On the other hand, HRA deduction has been raised by Rs. 36,000 under Section 80GG, thus promoting rental housing as well.

“The real estate scenario in our country will very soon land in fix, where affordable housing will be in trend and there will be no tenants that might reduce the investors and second time homebuyers base. Once everyone has a roof of their own, then why will somebody desire to put up in a rented property? When affordable properties will be in abundance, there will be a direct battle between EMIs and monthly rents, whichever costs less will attract the resident there. There might then come a time when commercial real estate will witness a boom in demand and see better days as future of housing will get completely secured”, states Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz.

In fact, from the developers’ perspective, the Budget speech has been much more favourable if we speak about affordable housing construction. Developers building affordable housing projects will not attract any taxes on the profits earned. “By offering various benefits to the developers considering affordable housing, the government has proved its focus area and this in turn can help promote housing demand in near future. Even the new entrants have a lot to cheer about plus, this will also make several entrepreneurs plan a business in real estate. Few years down the line, we are predicting a boom in housing but, a gradual decline in rental housing market”, enlightens Rahul Chamola, MD, One Leaf Group.

Speaking about how affordable housing is the next door for Indian real estate’s revolution and a spike for the demand of rental housing, Ashok Gupta, CMD of Ajnara India Ltd. concludes, “Since the emergence of the new government, there have been lot many expectations, where real estate sector has been no expectation. The demands of the fraternity and its buyers has been heard off many times as well, and this is where affordable housing has been the highest gainer of them all. Even though the government is jointly promoting affordable housing and rental housing in order to boost the overall demand for housing, and as affordable housing gets in the groove, rental housing might be on the losing end. The good news will always be that everybody can own a abode of their on own.”